The modern supply chain grows increasingly complex with each passing day. Digitization, focusing on fundamentals and change, augmented reality, artificial intelligence, and many other factors are transforming how the supply chain functions. Once, the lean supply chain was considered to be the most effective form of manufacturing and supply chain management. However, a new concept in supply chain processes, the agile supply chain, is quickly growing to replace lean.

Unfortunately, many supply chain entities do not understand or fail to grasp the full scope and concept of agility and how and it functions in relation and contrast to a lean supply chain. Let’s take a look at the agile supply chain and why it is quickly replacing the lean supply chain:

What Is the Agile Supply Chain?

The agile supply chain refers to the use of responsiveness, competency, flexibility, and quickness to manage a supply chain entity on a day-to-day basis. As reported by Martin Christopher in Industrial Marketing Magazine, unlike the lean supply chain, the agile supply chain uses real-time data and updated information to leverage current operations and real-time data against demand forecast, which helps to improve the overall efficiency and productivity of the given entity.

Why the Agile Supply Chain?

A key benefit of agility in the supply chain is the focus on avoiding potential shortages and eliminating overstocked inventory. In a sense, overstocking inventory was a typical response of lean concept. Because lean concepts focus on making processes more effective and efficient, it resulted in supply chain entities having large back-stocks of merchandise and unfortunately, due to changes in the economic market, consumer demand, and the growing customization of goods, excess inventory did not sell and became unwanted over time.

In a report by McKinsey & Company, up to 94 percent of companies that implemented supply chain practices with other solutions were able to deliver on time and in full, without keeping inventory in excess of 85 days. Conversely, companies that did not implement agile practices often had inventory remain in the warehouse for more than 108 days, while only 87 percent of deliveries were on-time. This does not even consider how many orders may not have been fulfilled for reasons such as delays in shipping processes, customization, or errors in order picking processes.

How Is Agility Fundamentally Different from Lean Concepts?

In supply chain entities which have used or implemented lean concepts in supply change management, extra costs have been removed along the way.

For example, using a computerized system to generate orders automatically, and using robotics to pick these orders, would refer to leaving concepts in the supply chain.

However, the issue with the Lean supply chain is the fact that the information garnered from that supply chain is not used to make a predictive, quantitative analysis of what will be needed in the future. As a result, the supply chain may have issues of slack: over or under-stocking, and inability to deliver a near-perfect degree of visibility.

The agile supply chain is able to rapidly adapt to changing environments such as the economy, customization, trends, and customer demands among many other factors. By giving a supply chain the ability to respond to such issues immediately, supply chain entities may successfully navigate the turmoil that may arrive and present itself throughout the course of manufacturing, shipping, and the reverse logistics supply chain.

How Does Agility Benefit a Supply Chain?

Agility practices enable the supply chain to change how processes operate. Lean concepts focus efforts on improving the workflow of individual employees in the supply chain, while, as explained by GT Nexus and Kurt Salmon, agile supply chain solutions use the approach of using real-time modular data and raw material reserve formulations as close as possible to the end-product. Agility allows supply chain partners to work together to produce the amount of product that is needed daily, not based on quarterly, monthly, or yearly forecasts. Essentially, agile solutions are a means of taking the Lean supply chain and improving it to foster more responsive supplier-to-customer-to-manufacturer relationships.

Agility also provides other benefits to the supply chain industry: by maintaining agility, supply chain entities can adapt to high variety, sudden changes in volume. Unfortunately, this implies the supply chain may not be able to produce a high volume of goods if certain materials are unavailable. As a result, supply chain entities who have implemented agile supply chain solutions understand that real-time data means the sudden change in demand could occur without warning, which could undermine the relationship between suppliers. Therefore, these entities have sought to find ways to still arrive at the same finished product, but at a customized result for each order.

For example, a supply chain entity in fashion or textile printing may not print the actual materials until those materials have already been ordered by a consumer. However, this implies the printing on the materials would not be able to take place until an order has been created, and subsequently, the printing processes would need to take place as close as possible to the area where the order would be fulfilled. Ultimately, this critical point in the agile supply chain requires breaking down organizational silos and rigid structures to better meet the demands on a local level.

Putting It All Together

Agility in the supply chain is rapidly changing how supply chain entities operate, meaning that executives and supply chain management solutions providers need to understand how agility and lean concepts work together to produce a more efficient, demand-driven supply chain. Failure to employ both Agility and Lean concepts in tandem could result in severe delays for a given supply chain entity.  There is a great need to respond to real-time data using smart systems, the Internet of Things, analytics, and an effective transportation management system. However, each of these factors in the agile supply chain pose serious implications for the future trends.

Permanent and inflexible procedures abound within the world of procurement and supply chain management. The main challenge for most buyers is exercising control. Supply chains are complex affairs that span borders and industries. For the most part, buyers aren’t entirely sure of the companies and links in the chain, nor, sadly enough, their own commercial relationships with those in the chain.

As such, the supply chain manager is left in the role of Policeman, looking to gain visibility over the supply chain and to create a framework for making purchasing decisions. Purchasing decisions must be made in an agreed framework and in accordance with the procurement policy. Just as a policeman watches for lawbreakers, the supply chain manager is on the lookout for maverick behavior among any actors in the chain.

Although frameworks are an excellent means to enforce behavior, they are limited in their capacity to generate agile or innovative actions.

In fact, these generations of buyers have built an inflexible and even brittle supply chain that is slow to adapt to change and is frequently left wrong-footed by sudden shifts in demand or supply.

It is undeniable that the world has grown more complex; forces such as globalization and surges in cultural memes drive consumer demand to develop more fickle tastes, with shoppers expecting greater levels of customization and localization. On many occasions, these desires are subconscious and consumers may not even know what they want.

As such, companies develop greater skills in managing a supply base that can meet these needs. This essentially means replacing buyers’ previous role of a policeman, with a more agile, responsive function.

Four tips for building an agile supply chain:

1. Build an agile team

Agile thinking originates from software developers. The agile method is an alternative project-management technique that designs processes that are inherently more aligned to customer needs. Previously, product developers collected feedback about customer need and build a prototype that speaks to that stated need. Customer feedback was slow and many long, expensive processes produced products that were a poor fit to the eventual market.

Agile methods involve regular testing of products and ideas within the development phase. Teams assemble in ‘scrums’ which build products fast for rapid customer testing. If products are ill-fitting, or buggy, then the scrum can return to the drawing board and quickly redevelop refined versions.

Similarly, building an agile team within supply chain management can encourage the creation of projects that more accurately align supplier output with end-customer need. Many successful companies – such as the Dutch bank ING – have recast their entire organizations in agile teams. This company divides into 13 ‘tribes’ which are further comprised of squads. All of these are focused on the achieving a fast output, not, as is the danger of many large companies, creating processes and frameworks.

2. Reward efficiency – and tolerate failure

Experimentation is at the heart of agility and the spirit to experiment only arises from those with the courage to risk failure. However, in most companies, to fail is to risk career prospects or the displeasure of supervisors, so most individuals choose to keep their heads down and rely on the comfort of their processes.

Environments which are truly fast-moving require a rapid churn through ideas. Fearing failure or managing the fall-out from a disastrous project is wasteful. It is better to encourage staff and suppliers to problem-solve and learn from mistakes, move on and focus on continuing the partnership forward, not looking to find the magic answer elsewhere.

3. Build agile supplier contracts

Historically, a flexible supply chain required redundancy; ensuring delivery of a good required building multiple relationships with a range of suppliers. This is called a ‘multisource’ supplier strategy. This is often used as a method to reduce risk in the supply chain; if one supplier fails, you can easily switch to your other, previously identified alternatives.

Similar approaches may be used to create more flexible and responsive supply chains. Buyers are accustomed to leveraging their power to lower prices, however this negotiating strength can also be deployed to reap other benefits as well, such as an ability to flex to meet changing market needs. Agile supply chains can be constructed by using buy-back contracts, zero-volume contracts or deeper relationships with suppliers in the lower tiers.

4. Use smart contracts

We have seen elsewhere that large corporations are only beginning to realize the potential of the blockchain, which enables the use of bitcoin by creating a public ledger, in company supply chains.

One of the most practical means by which companies may do this is through the establishment of smart contracts, which are contracts which are enforced using digital technologies. As with many practical innovations flowing from the heady world of cryptocurrencies, the decentralized nature of smart contract operations allows parties to verify the other party’s fulfilment without the need for a third party such as identity certificate issuers.